Royalties have been regarded as costs to be added to customs value - as long as the royalties meet all of the conditions set out in Law No. 10 of 1995 as amended by Law No. 17 of 2006 on Customs ("Customs Law") and its implementing regulation.

The Customs Law stipulates that:

"Transaction value is the price actually paid or that should be paid by the buyer to the vendor of goods sold to be exported to the customs area plus … (c) royalties and license fees that the buyer must pay, either directly or indirectly, as a condition of the sale of the goods being valued, as long as the royalties and license fees are not included in the price actually paid or that should be paid for the import goods concerned."

Furthermore, the implementing regulation (Minister of Finance Regulation No. 160/PMK.04/2010 as amended by Regulation No. 34/PMK.04/2016 on Customs Value for the Calculation of Import Duty ("Regulation No. 160")) sets out the cumulative requirements to determine whether a royalty and license fee should be added to the customs value. A royalty and license fee should be added to the customs value as long as:

1. It is paid directly or indirectly by the Buyer
2. It is a condition for the sale of the imported goods
3. It is related to the imported goods

As a result, the company from the beginning has to self-assess the following:

• Whether the royalty paid should be dutiable or should be added to the customs value
• The amount of the royalty cost that must be added to the customs value

Therefore, the government (i.e., Directorate General of Customs or "DGCE") decided to accommodate unknown royalty value through a voluntary declaration method under Minister of Finance Regulation No. 67/PMK.04/2016 on Voluntary Declaration of Customs Value for the Calculation of Import Duty ("Regulation No. 67").

Voluntary Declaration Requirement

According to Regulation No. 67, royalties, future price and proceeds can be declared under the voluntary declaration method. However, it appears that this method is more of an option than an obligation.

There may be a penalty in the range of 100% — 1000% of the underpayment of import duty value, if:

• During a customs audit, the DGCE finds an underpayment of import duty due to royalty that has not been added to the customs value.
• The company did not conduct voluntary declaration of royalty on the relevant customs manifest/declaration before the audit started.

On the other hand, there will be no penalty if:

• During a customs audit, the DGCE finds underpayment of import duty due to royalty that has not been added to the customs value; but
• The company has conducted a voluntary declaration of royalty on the relevant customs manifest/declaration before the audit started

Recent Development in Indonesia

• Royalty, future price and proceeds (particularly royalty) have been an object of scrutiny by the DGCE, especially after Regulation No. 67 came into effect.
• We recently encountered some cases where the DGCE stereotyped royalty paid by a company with other companies that have a similar field of business, but which have already conducted a voluntary declaration of royalty. Since the other companies did a voluntary declaration of royalty, the DGCE is of the view that the company should also declare its royalty paid as dutiable.

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 31st July 2018

Tweet

digg

Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

Related Topics

Indonesia Raises Import Tariffs on Consumer Goods

Indonesian Government Banking on Tax Amnesty to Plug Tax Shortfall

Useful Documents

Law No.17 of 2006 (Indonesian)

Law No. 10 of 1995 (Indonesian)